Is Yatharth the next breakout in healthcare?

$5 billion—that's how much private equity firms invested in the Indian hospital industry in 2023 alone. This includes marquee names like Advent, KKR, Temasek and more. While hospitals may appear dull on paper, the return potential is anything but. Tier-2 and tier-3 towns remain underserved, while tier-1 cities are witnessing rising patient volumes, creating a solid long-term growth runway. That perhaps explains the steep industry median P/E ratio of around 60 times.

But amidst this high-valuation crowd, one player stands out, trading at a significantly lower multiple of 37 times. While not dirt cheap, what drew our attention was the nature and intent behind its recent investments.

Two-pronged growth

Yatharth Hospital & Trauma Care Services has been quietly expanding its presence in the Delhi NCR region—arguably North India’s most lucrative healthcare market. While peers like Apollo, Max, Medanta, and Fortis have long dominated the premium end of the market, Yatharth is now carving its own path.

Beyond valuation—on which we will elaborate shortly—Yatharth’s future growth hinges on two core levers: capacity expansion and margin improvement.

The capex route

Yatharth currently operates 1,605 beds, with an FY25 occupancy rate of 61 per cent, a significant portion of which is located in Delhi NCR. The company plans to add approximately 700 more beds over the next year, taking the total to around 2,300 by FY26—and eventually scaling up to 3,000 beds by FY28.

This build-out has led to subdued earnings, as depreciation expenses have surged even before revenue growth kicks in—a familiar pattern in capital-intensive industries. Apollo Hospitals, India’s largest private hospital chain, went through a similar phase in FY16–17 during its capex-heavy cycle.

Near-term investments include a 400-bed hospital in Faridabad, a 300-bed facility in Delhi, and 450 additional beds across Noida and Greater Noida over the next 24–36 months. How is all this being funded? Yatharth raised approximately Rs 625 crore via a QIP and 490 crore through fresh issue in FY24 and  and currently maintains a net cash position of ₹503 crore.

While margins and return ratios remain muted for now, the company still posted an FY25 ROE of ~11 per cent and an operating margin of 19 per cent. As new capacity begins contributing meaningfully, margins could gradually return to their five-year median of around 21 per cent.

Margin expansion

ARPOB—or Average Revenue Per Occupied Bed—is a key metric for hospital operators, measuring daily revenue per occupied bed. It also serves as a proxy for a hospital’s brand strength and pricing power. Among major hospitals in NCR, the average ARPOB stands at approximately ₹59,000. All except one exceed this benchmark. The lone exception? Yatharth.

Yatharth’s relatively low ARPOB is due to multiple factors. Roughly 37 per cent of its revenue is derived from government schemes such as Ayushman Bharat, defence health programmes, and railway healthcare—all of which offer significantly lower tariffs than private insurers or self-paying patients. For instance, while ARPOB in its Noida units ranges between Rs 30,000 and Rs 38,000, the Jhansi facility earns just Rs 12,000 due to a predominantly government-patient base.

This also explains Yatharth’s weak cash flow conversion. It has the lowest CFO to EBITDA ratio (just 0.51x) among all listed hospitals with a market cap above Rs 1,000 crore.

Yatharth’s strategy is clear—it aims to gradually reduce its government payer exposure, especially in its NCR hospitals, where ARPOB potential is nearly double. The Faridabad unit, launched recently, already boasts an ARPOB of ₹30,384, with 85 per cent of revenue from private sources. The company is trying to cap revenue from the government segment to 15-20 per cent.

Moreover, the hospital chain is ramping up its presence in high-margin speciality services such as oncology, robotic surgery, and transplant. Yatharth has already introduced CAR T-cell therapy and neuro-navigation-based procedures, marking its ambitions in tertiary care.

As the share of private payers grows and the service mix evolves, both revenue and margins are set to benefit. The margin-accretive nature of these new offerings, coupled with operating leverage, could significantly enhance profitability.

When valuation makes sense

While the hospital industry may appear crowded, the reality is that healthcare penetration in India remains relatively low. This leaves ample room for all players to grow simultaneously.

Given Yatharth’s planned bed additions and the structural margin tailwinds, its current P/E of 37 times appears attractive. That said, the valuation gap versus peers stems from its lower ARPOB, slower cash flows, and higher exposure to government schemes.

The onus is now on the company to execute. If ARPOB fails to rise or occupancy remains stagnant, the valuation may remain depressed.

Yatharth is in the middle of a transformation—from a value-focused, second-tier operator to a specialised, NCR-centric healthcare player. It is still early in its investment cycle. The next 18–24 months will be crucial in validating its strategy. But for investors willing to bet on operational delivery, disciplined capex, and a favourable mix shift, the current valuation offers optionality.

In a sector where growth often comes at the expense of margins, Yatharth’s lean balance sheet, tight cost controls, and improving payer mix offer a compelling narrative. Whether that translates into premium valuation, though, will ultimately depend on one thing—its ability to turn beds into bottom line.

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This article was originally published on June 21, 2025.